Good Morning! I’m Karen Gibson, A Purchasing Coordinator in the Purchasing Department, and today I’m here to discuss Performance Based Contracting. For anyone not familiar with Performance Based Contracting it is….a technique for structuring all aspects of an acquisition around the purpose of the work to be performed. A Performance Based Contract is a contract structured around solutions and results that are desired. This presentation is designed to inform departments, who are wanting to contract with a vendor, and provide them with an informational guideline and tips to watch out for. Keep in mind that this presentation today is an overview as each section could have it’s own presentation at length, however this will give everyone who’s learning about this for the 1 st time an introduction into the concepts of performance based contracting.
What this means is structuring all aspects of an acquisition around the purpose of work to be performed as opposed to how the work is to be performed. It emphasizes quantifiable, measurable performance requirements and quality standards in developing statements of work, selecting contractors, determining contract type, incentives, and performing contract management including monitoring the contract. A firm fixed price contract should be used when the risk involved is minimal or can be predicted with an acceptable degree of certainty. Performance Based Contracts are most appropriate for well-defined, common, or recurring tasks with little certainty on what needs to be accomplished and how to measure such accomplishment.
There are several different procurement methods for acquiring equipment and services depending on the dollar amount of the purchase. Normally Anything over the bid limit, which is $50,000 and up, would require either an Invitation to bid, a Request for Proposal, An Invitation to Negotiate, a State Term Contract, etc. Anything under $50,000 can be discretionary and may require written quotes, depending on the purchase.
Just to clarify these procurement methods lets briefly go over each one: Invitation to Bid: This is a written document which will be opened at a public bid opening, at a date and time specified in the bid document. This is used for specific commodities; very detailed specifications; usually the only evaluation factor is cost. Request for Proposal (RFP): This is similar to a bid, and award criteria other an cost may be considered. This is used primarily for complicated purchases. This is more flexible than a bid and usually used for items that are not stock (off the shelf items). Very detailed specifications; generally based on what activities you want performed; more flexible in the evaluation factors. Invitation to Negotiate (ITN): This is usually used for even more complicated purchases (usually revenue based contracts or most appropriate for performance based contracts) and is similar to a Request for Proposal, however, it can be even more time consuming but is a very flexible (best value) approach. Results and Outcome oriented specifications; ultimate flexibility in evaluation factors which allows “best value” approach. Usually, if you’ve done an extensive amount of research and written a specification that you feel comfortable can be awarded to the lowest bid that meets that requirement, then you use an invitation to bid process. If, however, your solicitation is really designed to solve a problem, and you want to obtain the expertise of the supplier community (for creative solutions lets say), you would use a best value/performance based procurement. It varies, obviously depending on the procurement but in a performance based procurement your going to be reviewing the state of the art technical response. You’re going to be evaluating capabilities and past performance of the contractor as well as their innovative response to the statement of work. Sometimes you’ll issue a best value/performance based RFP and your really trying to assess the marketplace so as to gain the leading-edge technology. At other times, you know the type of service you want to obtain, so you’re really more asking for the qualifications of those who are responding so that you can weigh those and evaluate the best value for the State.
Then there are several other procurement methods that departments can utilize: State Contracts that are put out by the Department of Management Services (DMS) (State Purchasing). These are contracts that they have competitively bid and are for a particular term for agencies to use. University Term Contracts: These are initiated by the Purchasing Agent and Departments and are also for a particular term (competitively bid). Procurement Methods that would be exceptions to the bidding process would be: Sole Source Procurement: Used when no other vendor can supply the particular item needed. (Examples would be copyrighted or patented items, proprietary items such as software, etc. Emergency Purchase: This is a purchase brought about by a sudden unexpected turn of events (I.e., acts of God, riots, fires, accidents, etc.) or any circumstance beyond the control of the University. In order for this method to be used there would have to be involvement of health, welfare, public safety or injury or loss to the University if there were not an immediate purchase.
There are several key attributes to making a contract Performance Based: Outcome Orientation: Based on what RESULTS you want achieved rather than what ACTIVITIES you want conducted. (OUTCOME ORIENTED) Let the contractor figure it out and propose what they think is the best solution. Take advantage of the contractor’s R&D dollars and experience and let them propose solutions that incorporate best practices. Define clear performance expectations and measures. This is a critical element for contract management and monitoring. Let the contractor propose what the measures should be. You could find out they may hold themselves to a tougher standard. Have a baseline. This will allow you to monitor the contract and show that you are successful as opposed to just asserting expected results. Clearly define DUE DATES and MILESTONES. Attach due dates/milestones to payment and incentives. Provide INCENTIVES for performance. Incentives usually work better. I.e.: be prepared to hold contractors accountable via no payment attached to delivery if they are not performing. 5. Ensure performance is being achieved by MONITORING: We can’t stress enough how important it is to actively manage and monitor these contracts; if you fail to monitor then all of the up front work is a waste of time and effort. Performance based contracting grants flexibility in exchange for accountability for results.
We just touched on this a little bit on the slide before this one. Again, Your Deliverables/Milestones should be: Clear Detailed Concise Specific Measurable And Quantifiable I.E. In your procurement list your goods and services that are required, tasks that are required, time frames or milestones etc.
There are many possible source selection factors to consider when using the best value/performance based procurement method. Factors should be developed based on requirements and should relate directly to the goods or services being procured. Using too many evaluation criteria dilutes consideration of those that are important. I found out that the Commonwealth of Virginia often uses Life Cycle Costing (LCC) as a tool to measure the value of offers. LCC goes beyond the total acquisition cost. It also measures total operation and maintenance costs minus any residual value remaining after the useful life of the product is expended. Let’s say you were procuring a copier on a best value/performance based procurement process. You’d want to take into consideration the initial price of the copier, the cost of the maintenance over a specified number of years – say five. You’d want to take into consideration the cost of the toner and supplies. You add up all of those to determine what your total cost of ownership’s going to be. Reviewing vendors’ performance histories can be especially helpful in choosing a performance based/best value contract. The private sector has long looked at contractors’ current and past performance as a major criterion in selecting suppliers. It really doesn’t matter what system you use, as long as all of the evaluators understand it and are all using the same evaluation system. Ratings should reflect how well contractors meet the cost, schedule, and performance requirements of a contract. Continuous communication helps keep purchasers on the same page. It is helpful to have a system where the evaluators have the opportunity of getting together and discussing wide variances in scores. (An Evaluation Committee Meeting). They can say, “What did you see in the proposal that I didn’t see? You gave it a five, and I gave it a one.” This communication allows evaluators to share insights and may help to improve the accuracy of the scoring. Price, while not the only factor weighted in a performance based/best value contract, is still important. When evaluating price, consider whether the overall proposed costs are realistic, fair and reasonable, and complete. Typically, any type of Request for Proposal or ITN process is a best value procurement process when you’re taking into consideration factors in addition to cost.
Here we show the 4 steps to making a contract performance based. Note that It takes all 4! The use of these methods should lead to more cost effective acquisitions, better value, and greater competition. By utilizing these steps there should be a shift of some of the performance risk from FSU to the contractor. Contractors will be given more latitude for determining methods of performance, with more responsibility for performance quality. Therefore departments should experience fewer cost overruns, schedule delays and performance problems, etc. when utilizing these steps. With Planning – Understand the Goals you want the Partnership to Achieve.
We're starting with Step I: Planning. Planning is the 1st step to making a contract Performance Based: The goal here is to achieve “best value” for the University and the taxpayers. That incorporates any mix of: Cost Savings Improved Quality Innovation Flexibility and speed Expanding Service availability Providing better service, etc. Using Performance based/best value procurement can also encourage and increase small, women-owned and minority business participation.
Affordability must always be a consideration when spending public funds, but best value may be defined as….. Finding the best value, then, should be the ultimate goal of every acquisition. When you pay too much, you lose a little money, that is all. When you pay too little, you sometimes lose everything because the thing you bought was incapable of doing the thing it was bought to do.
Another area of Planning is Understanding Achievement Goals: First find out: What are the performance goals of your agency? How will the outsourcing/contract support those goals? From that, you can derive the goals of the partnership. Once you understand the goals of the partnership you can then prioritize the goals and assess their compatibility with yours. Expect your goals to be tested in negotiations!
The relationship with your contractor and good Communication within your organization is essential. The Contractor, too, needs open communication to provide input and receive feedback during the performance of the contract. To maintain open lines of communication: Meet regularly with the Contractor to discuss issues relating to performance and items of a contractual nature; Document meetings and discussions and provide a copy to the Contractor; and Seek ongoing feedback from anyone involved in the procurement as to their level of satisfaction with the goods or services and/or services supplied and review their requirements to ensure they remain appropriately specified.
The next area of Planning is criteria assessment: What is the estimated dollar value of the contract? There should be an assessment as to whether or not to even consider a performance based contract. Examine what you hope to achieve in terms of the mission and goals of your department/University and the requirements they must meet. The higher the contract dollar figure, the higher the risk the department assumes in contracting with a provider. Then some other issues that would also need to be considered would be: What happens if a service provider is not able to meet the outcomes? Will they support training and technical assistance? How can the outcome targets be revised in light of new realities? Are there escape clauses that permit either party to end the relationship? Etc. What are the nature of the services? Examine the context of the contract. Examine any concerns about service quality, profit motives, developing a different kind of monitoring capacity, and insuring that there are enough providers available to adequately respond to the contract offering. Assign weights to the type of service depending upon the complexity and the critical nature of each service category for evaluation purposes. Number of Clients Served: You will need to consider what happens to costs, outcomes and payments if the number of clients or the needs of clients change dramatically? The more clients served, the higher the risk. Has there been any prior provider performance that can be looked into or corrective actions? This could tell you something about the contractors you are considering. Providers who have previously had serious financial, administrative, or program deficits, or have difficulty being responsive to department requirements should be considered to present a higher risk than those who have not. What happens if your contract provider has a change in key executives? You may consider putting verbiage into your contract that stipulates who you will be dealing with in what area of the company. A higher risk occurs when the department has no contracting history with a provider or where a provider has made changes in its key executives (e.g. executive director, financial manager) within the last year. Is this contract per a State or Non-State Contract. Depending on this information you may or may not have to put a lot of work into making this a rewarding performance based contract.
Understanding Potential Pitfalls is a critical part of your Performance Based Contracting Plan: When putting together your performance based contract you will want to make sure the contract doesn’t hinder creative ways in which to achieve results. You will also want to be concerned that the contract cuts as much cost as it can without cutting service. You’ll want to make sure that the contract isn’t asking for so much that it keeps the contractor from achievement of the goals. What if the contractor has no start-up funds? You may want to consider progress payments along with deliverables to help a contractor that can help you achieve your goals. Be concerned with not creating a contract and atmosphere where you cannot achieve a good relationship with the vendor. Remember: A good relationship will add greatly to the chances of success and satisfaction of a contract. Lastly, Risk Identification: There are at least two levels of risk associated with contracts. Contract Risk – the risk associated with the delivery of the service. The services will not be delivered in accordance with the requirements of the contract term, cost, quality and quantity. Many contract risks are external and beyond our control. However, contract managers can establish an framework that includes delivery standards being maintained and contingency arrangements to deal with unexpected problems as they arise. Contract Management risk – the risk associated with the management of the contract. This type of risk is usually lower and usually comes from within the organization. However if the contract management is substandard then it could lead to erosion of the contract relationship and ultimately affect delivery.
Another part of Planning is Risk Management: It improves the basis for making decisions to meet operational requirements and program objectives; Helps to identify risks in the procurement process and ways to treat the risks effectively; Contributes to satisfying needs and achieving value for money in buying goods and services; and Reduces the cost of procurement to acceptable levels. Planning for risk in a procurement can lead to better planning and outcomes for contractors as well as buyers.
There are several stages in managing risks: Establish the Context: Departments should understand the environment in which the purchase is begin made and define the outcomes required for the purchase. Actions may include: Assembling a risk management team Familiarizing the team with the Department’s Objectives Identifying the item or service, identify alternatives and develop specifications Identifying key stakeholders Identifying stakeholder expectations Specifying critical success factors; and Developing an analysis structure of key elements or activities Identify the Risks: The objective here is to develop a comprehensive documented list of all potential risks, eg. What can happen, how and why it happens, from the viewpoint of all stakeholders. Analyze and Quantify the Risks: What is the likelihood of the risk event occurring? What are the consequences of the risks occurring? What controls are in place to prevent or detect potential risks? For each identified risk, determine its consequences and probability. Identify any existing controls used to manage risk and evaluate risks in the context of these existing controls. Evaluate and Prioritize the Risks: Evaluate the risk factors and arrange the listing of risks in priority order and decide which are acceptable/unacceptable. Focus on managing the higher priority risks, which are probably those of greater significance or material impact. Examples of Important risk considerations would be: Occupational Health and Safety Insurance Coverage (Public Liability, Workers Compensation, Indemnity) Indemnity Provisions Damage to Property Standard Terms and Conditions, etc. Treat the Risks: At the end of the risk process a decision is made, for each significant risk, on how to deal with the risk. Document risk treatment options such as reduction, avoidance, transfer and/or sharing of risk. Develop a risk treatment Action Plan that identifies who is accountable for which responsibilities, schedules, expected outcomes, budgets and performance criteria. Monitor and Review: This is a continual activity throughout the life of a procurement. It is necessary to note changing circumstances that may introduce new risks or remove originally identified risks. The risk management plan will change as a result of changing circumstances. The risk management process should be documented to: Maintain an audit trail; and Provide reference material for similar future procurements.
Once you understand potential pitfalls and risk, you should follow these guidelines to avoid them and to achieve goals: Start Simple and ratchet up. Frequently monitor indicators of performance. Be prepared to learn, change, improve, and learn some more. Work Collaboratively – not adversarially – with contractors. Pay vendors not just for the final output but for significant, well defined progress. Favor contractors with a good track record.
The final planning step involves the establishment of a contract manager: For each contractual procurement, there should be someone designated as a contract manager who shall be responsible for enforcing performance of the contract terms and conditions and serve as liaison with the contractor. The agency shall establish procedures to ensure that the contract services have been rendered in accordance with the contract terms prior to processing the invoice for payment. According to Section 287.057(13), Florida Statutes, “For each contractual Services contract, the agency shall designate an employee to function as contract manger.
Step II in the Performance Based Contract process is the Acquisition Strategy: It is vital to establish a baseline of performance upon which to set performance expectations. Measure pre-contract performance and set performance goals building from that. Be sure the goals are measurable in a contracting context.
When making Performance Based Partnerships there are several considerations in developing performance goals: Borrowing: Learning by borrowing from the best and adapting their approaches to fit your own needs. Benchmarking: An alliance between partners to share information on processes and measures that will stimulate innovative practices and improve performance. It provides real world models and realistic improvement goals. Or You could phase it this way: Benchmarking is the practice of being humble enough to admit that someone else is better at something and being wise enough to learn how to match and even surpass them at it. Xerox Corp. is given credit for first discovering that it would become vital to use benchmarks to compare itself to competitors as well as to reference points with their own organization. In the 80’s Xerox decided to compare unit manufacturing costs and features of their copying machines to one of the competitors. Recently benchmarking has developed into comparing performance and practices behind the used measures for the purpose of learning to become better. Mutuality: Sharing or developing mutual goals for the procurement at hand. And Lastly, Best Practices: Techniques that agencies may us to help detect and avoid problems in acquisition, management, and administration of contracts. Practical techniques learned from practical experience that can be used to improve the procurement process.
The solicitation should be performance-based! Have it explicitly tied to the goals of your department. Make it open ended to performance ideas Have baseline info, incentives, monitoring that is laid out Have it Ask for alternative measures, incentives, monitoring plans This way it is Results Oriented!
It is important to understand the importance of the skills of a contract manager: These skills need to be matched to the particular requirements of the contract. One of the skills listed here is Negotiation. It is also important to know your leverage.
The Final Task in Step II is: Enlist the service provider or contractor. They can help you: Develop performance measures Create incentive structures Ask the contractor to link you to other customers with useful experience Ask for it!
Step III is the Contract Management Phase: In carrying out these responsibilities, the contract manager interacts directly or indirectly with various personnel in the department, including but not limited to, the Purchasing Office, General Counsel’s Office, Comptroller’s Office, Budget Office, etc.
The Contract Manager’s responsibilities include: Defining precisely what is required to meet a need: Determine performance requirements Determine quality measures Carrying out the preparations for soliciting, analyzing, and awarding contracts: Determine the best provider to meet the requirements Identify funding source Identify nature of requirements Develop timelines Negotiating the contract and amendment(s): Follow the appropriate procurement procedures Reach a formal agreement for the services or product development/delivery with provider Coordinate with the Purchasing Office to determine the appropriate method of procurement, I.e. RFP, ITN, ITB, etc. Overseeing and enforcing the providers performance of contract terms and conditions: Develop monitoring plan Implement Monitoring Plan Receive and review the reports of the contractor to determine whether the objectives of the contract are being accomplished. Provide technical assistance to the contractors and their staff in the resolution of performance and other contract-related issues. When there are subcontractors, evaluate the process used by the prime contractor to monitor the activity of the subcontractors. Reviewing and approving provider’s invoices for payment Maintaining a comprehensive file on the contract Acting as the liaison (single point of contact) between the provider and the department. In short, the contract manager has primary responsibility for the contract.
It is important to understand how incentives should be created. Tie the payment structure to the performance elements Incentives must differentiate among levels of performance Track the success or failure of various incentives using: Scaled rewards Performance penalties By the Award Term Shared Savings Capitalized payments
Managing the contract is critical to true performance based contracting: Contract Managers Need: A firm grasp of contract law Good Accounting Skills The ability to measure performance compliance Negotiating Skills Conflict Management Skills Communications Skills Perhaps the most important – mental flexibility and ability to adapt to change! Service providers, performance measures, and goals change over time. If performance really matters – devote resources to Human Capital.
The final step, step IV is the Monitoring of the Contract. Understanding Measurement Principles is vital... Statistics should be used to quantitatively analyze and understand compliance.
Plan how to monitor before issuing the Bid/RFP/ITN or signing the contract Include the monitors in developing the standards for the contract Monitoring plans cannot be boilerplate – tailor them to the particulars of each contract Tie monitoring plans to risk – the greater the risks, the more high-cost and high control the monitoring plan should be. Tie monitoring plans to contract complexity – more complex contracts require more rigorous monitoring. Appropriate records of activities related to monitoring and supervision should be maintained. Lastly, An area of high risk is overpayments. The contract manager is responsible for the certification and timely payment of accounts in accordance with the contractual arrangements. Techniques should be used to avoid overpayments such as, carefully reconciling claims for payment against delivery of goods or services, especially when staged delivery occurs. Claims for payment should be verified and suitably certified. I.E. Risk on construction projects is reduced by requiring contractors to submit declarations confirming that sub-contractors have been paid. Payment should be linked to performance and be made only on completion of clearly identified milestones.
To Summarize, Performance Based Contracting is a technique used for solutions and results acquisitions emphasizing measurable performance requirements. It is used to structure contracts around solutions and results that are desired. Departments should use it when there is little certainty on what needs to be accomplished and how to measure such accomplishments. The 4 steps covered are: Planning (i.e. Understanding Achievement Goals), Acquisition (I.E. Making Performance Based Partnerships), Management (I.E. Incentives) and Monitoring. The use of these methods should lead to more cost effective acquisitions, better value, and greater competition. By utilizing these tools there should be a shift of some of the performance risk from FSU to the contractor. Contractors will be given more latitude for determining methods of performance, with more responsibility for performance quality. FSU should experience fewer cost overruns, schedule delays, and performance problems. This process requires that we re-evaluate our workload to determine what really needs to be done and how best to do it. Once this process has been used several times, future performance based contracting acquisitions will be easier, and our needs will be better defined and manageable. This creates a &quot;win/win&quot; situation for both FSU and the contractors. Use Performance Based Contracting only when it makes sense to do so. It’s a very good procurement too, but it’s just that, a tool. Just like you don’t use a hammer for every job, sometimes you need a screwdriver and sometimes you need a saw. It’s important to be able to understand how to use performance based procurements and then appropriately apply it in the right situations. Remember, it offers flexibility, quality and cost improvements based on evaluation, comparisons, and trade-offs, while not being backed into a corner to make an award based on lowest price.
Performance Based Contracting
Performance Based Contracting Florida State University Purchasing Department
Adopting A Performance Mindset <ul><li>The Basic Principle: </li></ul><ul><li>Managing Results Through </li></ul><ul><li>Measurement </li></ul>
Basic Requirements Procurement Level <ul><li>Requires : Competitive Solicitation </li></ul><ul><li> and a Written Contract </li></ul><ul><li>Options : ITB, RFP, ITN, State Term Contract </li></ul>$50,000 Purchase (Category 2) Discretionary Procurement Method
University Procurement Clarification of Procurement Methods
University Procurement Other Procurement Methods <ul><li>State Contract </li></ul><ul><ul><li>Originated by the Department of Management Services </li></ul></ul><ul><li>University Term Contract </li></ul><ul><ul><li>Purchasing Agent Initiated </li></ul></ul><ul><li>Exceptions </li></ul><ul><ul><li>Sole Source, Emergency, etc. </li></ul></ul>
Making a Contract Performance Based Key Attributes <ul><li>Outcome orientation </li></ul><ul><ul><li>Bids solicited based on expected results NOT </li></ul></ul><ul><ul><li>Activities to be conducted </li></ul></ul><ul><li>Clearly defined objectives </li></ul><ul><li>Clearly defined timeframes </li></ul><ul><li>Performance incentives </li></ul><ul><li>Performance monitoring </li></ul>
Making a Contract Performance Based Deliverables/Milestones <ul><li>Clear </li></ul><ul><li>Detailed </li></ul><ul><li>Concise </li></ul><ul><li>Specific </li></ul><ul><li>Measurable </li></ul><ul><li>Quantifiable </li></ul>Must Be:
Making a Contract Performance Based Measuring What’s Relevant: Selection Factors <ul><li>Total cost of ownership </li></ul><ul><li>Quality of goods/services </li></ul><ul><li>Proposed Technical Performance </li></ul><ul><li>Financial Stability </li></ul><ul><li>Cost of training </li></ul><ul><li>Qualifications of the individuals within the company </li></ul><ul><li>Risk Assessment of the proposed solutions </li></ul><ul><li>Availability and cost of technical support </li></ul><ul><li>Past Performance </li></ul><ul><li>Cost/Price </li></ul>
Making a Contract Performance Based Step 1 Planning Understanding Achievement Goals Step 2 Acquisition Strategy Making Performance Based Partnerships Step 3 Contract Management Incentives Step 4 Monitoring
Step I: Planning Understanding Achievement Goals Primary Goals <ul><li>Financial Savings </li></ul><ul><li>Better Quality </li></ul><ul><li>Better Service </li></ul>“ The primary goal of Performance Based Contracting is the achievement of the BEST VALUE for the Taxpayer” <ul><li>More Innovation </li></ul><ul><li>More Flexibility </li></ul><ul><li>More Availability </li></ul>This Includes:
Step I: Planning Understanding Achievement Goals <ul><li>“Best Value” Definition </li></ul><ul><li>The outcome of any acquisition that ensures customer needs are met in the most effective, timely, and economical manner. </li></ul>
Step I: Planning Understanding Achievement Goals <ul><li>1) Ask These Key Questions: </li></ul><ul><ul><li>What are your departments Performance Goals? </li></ul></ul><ul><ul><li>How will the contract/vendor support those goals? </li></ul></ul><ul><li>2) Derive Partnership Goals </li></ul><ul><li>3) Prioritize Partnership Goals </li></ul><ul><li>4) Assure/Assess the Compatibility of these Goals </li></ul>
Step I: Planning Understanding Achievement Goals Relationship with Vendors <ul><li>Visit the with the vendor/provider </li></ul><ul><li>Document all communications </li></ul><ul><li>Keep your attitude friendly </li></ul><ul><li>Be assertive…but not antagonistic </li></ul><ul><li>Be honest when you don’t know the answer and obtain an answer as soon as possible </li></ul>“ A good vendor relationship will add greatly to the chances of success and satisfaction of a contract”
Step I: Planning Understanding Achievement Goals Criteria Assessment <ul><li>Dollar Value of the Contract </li></ul><ul><li>Nature of the Services </li></ul><ul><li>Number of Clients Served </li></ul><ul><li>Prior Provider Performance and Corrective Actions </li></ul><ul><li>New Provider or Change in Key Executives </li></ul><ul><li>State or Non-State Contract </li></ul>
Step I: Planning Understanding Achievement Goals Potential Pitfalls <ul><li>1) Inhibiting Experimentation </li></ul><ul><li>2) Cutting Cost But Not Service </li></ul><ul><li>3) Stifling Overachievement </li></ul><ul><li>4) No Start-up Funds </li></ul><ul><li>5) Inhibiting Symbiotic Relationships </li></ul><ul><li>6) Risk Identification </li></ul><ul><li>-Contract Risk and Contract Management Risk </li></ul>
Step I: Planning Risk Management <ul><li>What is Risk Management? </li></ul><ul><li>The culture, processes, and structures that are directed toward the effective management of potential opportunities and adverse effects. </li></ul><ul><li>Why does it Matter? </li></ul>
Step I: Planning Stages in Managing Risk <ul><li>The main steps in a risk management process: </li></ul><ul><li>Establish the context </li></ul><ul><li>Identify the Risks </li></ul><ul><li>Analyze and Quantify the Risks </li></ul><ul><li>Evaluate and Prioritize the Risks </li></ul><ul><li>Treat the Risks </li></ul><ul><li>Monitor and Review </li></ul>
Step I: Planning Understanding Achievement Goals Avoiding Pitfalls <ul><li>Start Simple & Build </li></ul><ul><li>Monitor Performance Indicators Frequently </li></ul><ul><li>Take an Adaptive Approach </li></ul><ul><li>Encourage Collaboration with Contractors </li></ul><ul><li>Reward Contractors who Demonstrate Well Defined Progress Consistently </li></ul>Robert D. Behn & Peter A. Kant, “Strategies for Avoiding the Pitfalls of Performance Contracting,” Public Productivity and Management Review, 22 (4), 1999, 470-89.
Step I: Planning Establishing a Contract Manager <ul><li>Definition of Contract Manager: </li></ul><ul><li>The Contract Manager is the person charged with the daily administrative management of the contract. Primary duties are to plan activities, manage risk, monitor contractor performance and exercise delegated authority. </li></ul>
Step II: Acquisition Strategy Making Performance Based Partnerships Establishing a Baseline <ul><li>Establishing a Performance Baseline is Vital to Setting Performance Expectations </li></ul><ul><li>Begin By Measuring Pre-Contract Performance </li></ul><ul><li>Assure Goals are Measurable in a Contracting Context </li></ul>
Step II: Acquisition Strategy Making Performance Based Partnerships Developing Performance Goals <ul><li>Borrowing </li></ul><ul><li>Benchmarking </li></ul>“ When developing Performance Goals, consider the future possibilities…don’t use past performance as a limiting factor” <ul><li>Mutuality </li></ul><ul><li>Best Practices </li></ul>CONSIDERATIONS:
Step II: Acquisition Strategy Developing Performance Goals Detailed Scope of Work “ The Detailed Scope of Work describes what the contractor is to accomplish. It should address what, who, when, where & how. It is the foundation for the entire procurement” <ul><li>What is to be done and what are the deliverables </li></ul><ul><li>Who is going to do it </li></ul><ul><li>When it is going to be done </li></ul><ul><li>Where will it be done </li></ul><ul><li>How it will be done and how can you tell when it’s done </li></ul>
Step II: Acquisition Strategy Making Performance Based Partnerships Contract Negotiation <ul><li>There are 2 elements in Negotiating Contracts: </li></ul><ul><li>1) Skill of Negotiator </li></ul><ul><ul><li>Know what to ask for </li></ul></ul><ul><li>2) Leverage of the Buyer </li></ul><ul><ul><li>Know your leverage </li></ul></ul>
Step II: Acquisition Strategy Making Performance Based Partnerships Developing Performance Goals <ul><li>Solicit Service Providers for: </li></ul><ul><li>1) Development of Performance Measures </li></ul><ul><li>2) Creation of Incentives </li></ul><ul><li>3) Referrals </li></ul>
Step III: Contract Management Contract Manager Role/Responsibilities <ul><li>Contract Manager interacts directly or indirectly with: </li></ul><ul><li>Personnel in the Department </li></ul><ul><li>Purchasing </li></ul><ul><li>General Counsel’s Office </li></ul><ul><li>Comptroller’s Office </li></ul><ul><li>Budget Office </li></ul>
Step III: Contract Management Contract Manager Roles/Responsibilities <ul><li>Defining precisely what is required to meet a need </li></ul><ul><li>Carrying out the preparations for soliciting, analyzing, and awarding contracts </li></ul><ul><li>Negotiating the contract and amendment(s) </li></ul><ul><li>Overseeing and enforcing the providers performance of contract terms and conditions </li></ul>
Step III: Contract Management Creating Incentives <ul><li>Payment Structures Should be Tied to Performance Elements </li></ul><ul><li>Levels of Performance Should be Differentiated for Incentives </li></ul><ul><li>Incentive Successes Should be Tracked </li></ul>
Step IV: Monitoring Measurement Principles <ul><li>A Metric of At Least 3 Measures Should be Used to Understand the Object </li></ul><ul><li>Statistics Should Be </li></ul><ul><li>used to Understand </li></ul><ul><li>the Behavior of </li></ul><ul><li>Occurrences of an Attribute </li></ul>
Step IV: Monitoring Monitoring Principles <ul><li>1) Create a Monitoring Plan prior to issuing an Bid/RFP/ITN or Completing a Contract </li></ul><ul><li>2) Incorporate Measurement Principles in the Monitoring Plan </li></ul><ul><li>3) Monitoring Plans should be tailored to the intricacies of each contract </li></ul><ul><li>4) Riskier contracts are more complex and should have more detailed Monitoring Plans </li></ul>
To Summarize <ul><li>What is Performance Based Contracting? </li></ul><ul><li>Why is it used? </li></ul><ul><li>Who uses it? </li></ul><ul><li>What are the 4 steps? </li></ul>